On October 12th, 2012, Alisher Usmanov’s stake in Arsenal Holdings PLC was recorded as 29.87% by Reuters, a very reputable source of financial data, whilst Stan Kroenke’s holdings were listed at 66.83%. Today, Arsenal’s official website announced that Usmanov’s holding is 29.99% whilst Kroenke remains the same at 68.83%. Also today, 1 share was bought in Arsenal Holdings PLC at 11.18am for £15,000.

Broken down, this means that over the last six and a half months, Usmanov has bought 79 shares in Arsenal Holdings PLC and he now owns 18,663. Whilst the exchange listed bid ask price (the difference between you can buy and sell shares) is £15,000 (to sell to the exchange) and £17,000 (to buy from the exchange), on the ICAP securities and derivatives exchange, the volume-weighted average price is closer to £16,000 over that elapsed time period, meaning that Usmanov, and his business partner Ardavan Farhad Moshiri, have spent roughly £1,264,000 since October 12, 2012 buying shares in Arsenal Holdings PLC, the parent of Arsenal Football Club.

During the same time, Kroenke, according to the figures anyway, hasn’t bought a single share. What we do know is that since October 12th, 36 fleet-float shares have been bought in Arsenal Holdings PLC meaning that if, in theory, they were all Usmanov, then, he will have bought 43 shares in the Over The Counter (OTC) market from private investors.

Obviously, it shouldn’t be discounted that other parties will most likely have bought shares given that fan schemes such as the Arsenal Supporters’ Trust offer an investment vehicle called Fanshare for fans to own equity in both ‘fan shares’ and category A shares. Given that Arsenal do not pay a dividend; however, it is unlikely that someone bar Usmanov bought the majority of these shares. This ultimately means one thing, Usmanov is, according to Arsenal’s websites, only 2.1 (3 rounded up) shares away from 30% that would, at most PLCs, enable him to submit a take-over bid for the club which has an approximate market capitalisation (i.e. market value) of £1bn.

However, Tim Payton and angryofIslington ensure that Arsenal have removed this obligation. He can, therefore, submit a bid at any point. Slowly building his portfolio of AFC shares at £16k a share means it will ultimately be cheaper now if he bids for Stan's shares which he will expect to pay a hefty premium on, if successful. What makes me think that Usmanov will submit a takeover bid, and perhaps not necessarily when he strikes 30%, within the next year or two, is that it simply wouldn’t make sense for him not to. If you look at the pricing pattern of the bought shares and the subsequent time elapsed between each purchase, it is clear that caution is given as not to spike the price.

There appears to be a slow-growth strategy. It wouldn’t make sense for Usmanov to launch a takeover bid for several reasons. Predominantly, these are 1.) illiquidity, 2.) no power and no 3.) no dividend.

1. Illiquidity refers to the ease with which you can buy a security (stocks, bonds, credit default swaps, etc) and, it is clear, that Arsenal share are illiquid, i.e. they’re not readily bought and sold especially compared with shares of leading FTSE companies like Shell and Vodafone. Usmanov’s stake is now worth, at current market value of £16,000 per share, £298,608,000. Even if the share price of Arsenal continues to increase, it is unlikely that Usmanov can easily sell those shares as few investors would purchase his stake for such a volatile and non-dividend paying share which holds such liquidity risk. If there’s greater demand to sell than there is to buy then the price will drop and this will wipe out his profit. Also, compared to Manchester United which has investment from large institutions such as Blackrock, Soros and Fidelity, there are no major funds interested in investing in Arsenal, only a handful of wealthy individuals and fans. Some Hedge Funds have found that they have bought so many shares in 1 company they rose the price so much that, when they came to sell and cash-in on profit, no one wanted to buy. This is liquidity

risk. 2. As it stands, Usmanov isn’t a board member and it seems unlikely that the Arsenal board are going to change their mantra any time soon that they will not care his sort in N5. This means that Usmanov is unable to influence policy such as dividend payments, commercial agreements and revenue streams, player transfers, ticketing etc aside from his pr campaign.

3. Arsenal Holdings PLC does not pay a dividend and have suggested that this policy will continue.

The question is, why would you hold nearly £300m ownership in a company knowing full-well that there is a liquidity risk to holding those shares, so even if the value rises it would be hard to sell, the club won’t listen to you and there is no financial reward if the form of a dividend for the huge investment risk you are taking?

My answer is that unless you are slow growth investor with ambitions to become the owner of the company, it simply wouldn’t make sense. That is why I believe, and I could very well be wrong, Usmanov will launch a takeover bid for Arsenal Holdings PLC within the next 24 months.

We know that there are roughly 2.44% (1,519) shares available for purchase on the free-float exchange market which could be snapped up by an investor with ambitions to launch a takeover bid. Follow me, @PR_WhoRu for information on Arsenal’s shareholdings.

The big question is will Stan sell to the Russian and if he is wouldn't it be in his own interest to buy the floating shares at a high price to so the take over price rises?

Or is Stan looking at his investment at Arsenal as a long term investment, he has quietly overseen a difficult financial period which looks like it is coming to end. Is he now looking to change the way Arsenal run, more to the Manchester United way of increased sponsorship, personnel sponsorship wage structure and increased commercial activity but without the huge debt repayments they have?

With the new shirt deals, TV deal and cash in the bank to help cover debt repayment it sounds a good time to sell up but does Stan want success on the pitch more than the money?

Reply

@PR_WhoRu

06/05/2013 1:33am

Morning Swales,

You're right, the big caveat to my blog is that, regardless of what Usmanov wants, the power is in SK's hands.

SK's intentions are just as elusive as Usmanov's. AU has posed himself as an Arsenal fan desperate to achieve on the field success whereas Silent Stan has drawn critics for his hands-off approach - if SK wants football success, why are those being sold not being replaced, for example? It seems Stan likes own majority ownership in a portfolio is top performing sports franchises whereas Usmanov's portfolio of investment is much more diverse. It is hard to gage what both really want. SK continues to not take a dividend, although he has a £67k salary, whereas it is is believed Usmanov wants a dividend. As you rightly point out, it will be hard to truly see what SK wants if and when Usmanov bids: a profitable return on his shares (sell) or long term financial and sporting success (reject offer).

I know several several analysts have been disappointed with Arsenal's commercial performance in recent years - revenue this year was lower than 08, for example. Revenue is also extremely inconsistent. Either owner would need to focus on this.

I imagine Stan's shares were bought in the OTC market so much cheaper than the current price on the free float exchange.

I also imagine both camps have an army of PR consultants on hand to help argue their case this summer. After last year's distaster of an AGM and with sentiment for Usmanov growing, Stan really needs to make his intentions clear.

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Stuart

06/05/2013 12:05am

Hi,
A big inaccuracy in your report, one which is regularly misunderstood.

Reaching the 30% threshold does not then make it possible for Usmanov to make a takeover bid, it means he MUST make a takeover bid which does not have to be accepted.

He or anyone can make a takeover bid at any time.

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@PR_WhoRu

06/05/2013 1:14am

Morning Stuart,

With the 30% take over over threshold, as I mention I have spoken to Tim Payton and @angryofislington, both senior board members of the Arsenal Supporters' Trust (both interact with Gazidis), and they insist that any obligation for a shareholder who reaches 30% has to make a formal takeover bid has been removed by the Board. Any shareholder can bid at any point in time regardless of their stake.

Perhaps this is to negate instability if Usmanov hit by 30% during the season, for example.

Tim argues that Usmanov is free to bid as and when he wishes which would pose questions as to why Usmanov is continuing to slowly build his equity stake. Perhaps he is buying up 'cheap' equity now now before he'd expect to pay a hefty premium if Stan agreed to negotiate.

Do you feel Usamov will bid soon?

Reply

Stuart

06/05/2013 1:37am

Hi,
Yes, regarding the obligation being removed, that is fair enough, I was more pointing to the fact your article would lead one to believe a takeover bid is only possible once 30% is achieved when in fact anyone can launch a takeover bid at any time, reaching 30% usually means a takeover bid must be made however it was possible at any time.

I decided to pick up on this as I regularly speak with Arsenal fans, many of whom are in support of an Usmanov take over and the most common wish I hear is 'i really hope Usmanov gets to the 30% threshold soon so that he can make a takeover bid and buy the club'.

My own opinion on Usmanov ownership is, if he really actually cared about the club rather than his investments, he would already own the club. Sorry, the guy is not in it because he is a life long fan ad often claimed (where is the picture of him as a youngster with something Arsenal related as we had with RVP in his Arsenal top sitting on his bed when he was a kid?). IMO, the club is purely a financial investment for him and as far as investment opportunities go, it is one of the best out there in the world - already globally recognised with a global loyal customer base, virtually debt free, state of the art stadium already built, state of the art training and medical facilities. As an investment opportunity, you'd find it difficult to give me a better club to takeover and from the investor angle, I don't blame the guy for wanting to be in on it, only a fool or someone looking for a major challenge would put their money elsewhere.

Will Usmanov take over? Probably eventually although if he really wanted it, he would own it now.

You Are My Gooners

06/05/2013 12:54am

Thanks for reading & taking time to point this out. We are sure the author will come back to you himself with the point you raised.

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